<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1937
For the transition period from to
--------- ---------
US Airways Group, Inc.
(Commission file number: 1-8444)
and
US Airways, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware US Airways Group, Inc. 54-1194634
(State of incorporation US Airways, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Numbers)
US Airways Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-5306
(Registrant's telephone number, including area code)
US Airways, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file
such reports), and (2) have been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
As of April 30, 1997, there were outstanding approximately
65,275,000 shares of common stock of US Airways Group, Inc. and
1,000 shares of common stock of US Airways, Inc.
The registrant US Airways, Inc. meets the conditions set
forth in General Instructions H(1)(a) and (b) of Form 10-Q and is
therefore participating in the filing of this form with the
reduced disclosure format.
<PAGE>
US Airways Group, Inc.
and
US Airways, Inc.
Quarterly Report on Form 10-Q
Table of Contents
Part I. Financial Information Page
----
Item 1A. Financial Statements - US Airways Group, Inc.
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 1997 and 1996 1
Condensed Consolidated Balance Sheets
- March 31, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 6
Item 1B. Financial Statements - US Airways, Inc.
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 1997 and 1996 9
Condensed Consolidated Balance Sheets
- March 31, 1997 and December 31, 1996 10
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1997 and 1996 12
Notes to Condensed Consolidated Financial Statements 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
<PAGE>
US Airways Group, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 (unaudited)
(in thousands, except per share amounts)
1997 1996
---- ----
Operating Revenues
Passenger transportation $1,896,855 $1,677,541
Cargo and freight 44,331 38,177
Other 159,892 152,704
--------- ---------
Total Operating Revenues 2,101,078 1,868,422
Operating Expenses
Personnel costs 756,691 750,206
Aviation fuel 225,029 182,016
Commissions 144,591 132,305
Aircraft rent 120,933 113,191
Other rent and landing fees 100,343 100,350
Aircraft maintenance 96,881 99,973
Depreciation and amortization 77,011 81,526
Other, net 403,971 398,063
--------- ---------
Total Operating Expenses 1,925,450 1,857,630
--------- ---------
Operating Income 175,628 10,792
Other Income (Expense)
Interest income 23,842 13,519
Interest expense (64,508) (67,793)
Interest capitalized 2,775 1,449
Equity in earnings of affiliates 13,418 11,262
Other, net 14,219 (476)
--------- ---------
Other Income (Expense), Net (10,254) (42,039)
--------- ---------
Income (Loss) Before Taxes 165,374 (31,247)
Provision for Income Taxes 12,716 1,046
--------- ---------
Net Income (Loss) 152,658 (32,293)
Preferred Dividend Requirement (20,864) (22,274)
--------- ---------
Net Income (Loss) Applicable to
Common Stockholders $ 131,794 $ (54,567)
========= =========
Income (Loss) per Common Share
Primary $ 2.00 $ (0.86)
========= =========
Fully-diluted $ 1.45 $ (0.86)
========= =========
Shares Used for Computation (000)
Primary 65,777 63,618
Fully-diluted 105,211 63,618
See accompanying Notes to Condensed Consolidated Financial
Statements.
1
<PAGE>
US Airways Group, Inc.
Condensed Consolidated Balance Sheets
March 31, 1997(unaudited) and December 31, 1996
(dollars in thousands, except per share amounts)
March 31, December 31,
1997 1996
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 868,848 $ 950,966
Short-term investments 595,408 635,839
Receivables, net 450,825 337,025
Materials and supplies, net 235,759 248,774
Prepaid expenses and other 156,712 137,590
--------- ---------
Total Current Assets 2,307,552 2,310,194
Property and Equipment
Flight equipment 5,183,249 5,202,057
Ground property and equipment 1,115,990 1,108,648
Less accumulated depreciation and
amortization (2,517,494) (2,470,337)
--------- ---------
3,781,745 3,840,368
Purchase deposits 77,620 77,620
--------- ---------
Total Property and Equipment, Net 3,859,365 3,917,988
Other Assets
Goodwill, net 490,498 494,511
Other intangibles, net 284,222 283,309
Other assets, net 529,286 525,409
--------- ---------
Total Other Assets 1,304,006 1,303,229
--------- ---------
$7,470,923 $7,531,411
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 93,194 $ 84,259
Accounts payable 387,578 438,951
Traffic balances payable and
unused tickets 938,416 715,576
Accrued aircraft rent 427,713 510,752
Other accrued expenses 844,762 1,099,181
--------- ---------
Total Current Liabilities 2,691,663 2,848,719
Long-term Debt, Net of
Current Maturities 2,577,997 2,615,780
Deferred Credits and Other Liabilities
Deferred gains, net 352,944 359,748
Postretirement benefits other
than pensions, non-current 1,112,098 1,093,519
Non-current employee benefit
liabilities and other 545,968 439,308
--------- ---------
Total Deferred Credits and
Other Liabilities 2,011,010 1,892,575
(continued on following page)
2
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US Airways Group, Inc.
Condensed Consolidated Balance Sheets
March 31, 1997(unaudited) and December 31, 1996 (Continued)
(dollars in thousands, except per share amounts)
March 31, December 31,
1997 1996
---- ----
Commitments and Contingencies
Redeemable Cumulative Convertible
Preferred Stock
Series A, 358,000 shares issued,
no par value 358,000 358,000
Series F, 30,000 shares issued,
no par value 300,000 300,000
Series T, 10,000 shares issued,
no par value 100,719 100,719
Stockholders' Equity (Deficit)
Series B cumulative convertible
preferred stock, no par value, 213,128 213,128
4,263,000 depositary shares issued
(liquidation preference of $259,750
as of March 31, 1997)
Common stock, par value $1 per share,
authorized 150,000,000 shares, 64,567 64,306
issued and outstanding 64,567,000
and 64,306,000 shares, respectively
Paid-in capital 1,390,906 1,386,557
Retained earnings (deficit) (2,109,579) (2,117,838)
Common stock held in treasury - -
Deferred compensation (92,279) (95,326)
Adjustment for minimum
pension liability (35,209) (35,209)
--------- ---------
Total Stockholders' Equity (Deficit) (568,466) (584,382)
--------- ---------
$7,470,923 $7,531,411
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements.
3
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US Airways Group, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 (unaudited)
(in thousands)
1997 1996
---- ----
Cash and cash equivalents
beginning of period $950,966 $881,854
------- -------
Cash flows from operating activities
Net income (loss) 152,658 (32,293)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities
Depreciation and amortization 77,011 81,526
Loss (gain) on disposition of
property (14,052) 3,454
Amortization of deferred gains
and credits (6,921) (6,915)
Other (263) 1,412
Changes in certain assets
and liabilities
Decrease (increase) in
receivables (113,800) (121,247)
Decrease (increase) in materials
and supplies, prepaid expenses
and pension assets (10,907) (15,481)
Increase (decrease) in traffic
balances payable and unused
tickets 222,840 226,838
Increase (decrease) in accounts
payable, accrued aircraft rent
and other accrued expenses (333,447) (165,923)
Increase (decrease) in post-
retirement benefits other
than pensions, non-current 18,579 18,803
------- -------
Net cash provided by (used for)
operating activities (8,302) (9,826)
Cash flows from investing activities
Aircraft acquisitions and
purchase deposits, net (5,538) (3,385)
Additions to other property (38,133) (29,693)
Proceeds from disposition of property 40,523 3,555
Decrease (increase) in
short-term investments 35,710 (25,695)
Decrease (increase) in restricted
cash and investments 8,715 985
Other 1,923 (11,903)
------- -------
Net cash provided by
(used for) investing
activities 43,200 (66,136)
(continued on following page)
4
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US Airways Group, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 (unaudited)
(Continued)
(in thousands)
1997 1996
---- ----
Cash flows from financing activities
Issuance of debt - 103,002
Reduction of debt (28,848) (123,551)
Issuance of common stock 3,927 596
Sale of treasury stock 1,020 -
Dividends paid on preferred stock (93,115) -
------- -------
Net cash provided by
(used for) financing
activities (117,016) (19,953)
------- -------
Net increase (decrease) in cash
and cash equivalents (82,118) (95,915)
------- -------
Cash and cash equivalents end of period $868,848 $785,939
======= =======
Noncash investing and financing activities
Issuance of debt - refinancing of
debt secured by aircraft $ - $159,998
Reduction of debt - refinancing of
debt secured by aircraft $ - $154,422
Issuance of debt - aircraft
acquisitions $ - $ 4,585
Underwriter's fees - refinancing of
debt secured by aircraft $ - $ 2,488
Treasury stock acquired for tax
withholding on employee stock grants $ 1,141 $ -
Dividends declared on preferred stock,
but not paid during period $ 51,284 $ -
Supplemental Information
Cash paid during the period for
interest, net of amount capitalized $ 84,047 $ 93,804
Net cash paid during the period
for income taxes $ 1,132 $ 153
See accompanying Notes to Condensed Consolidated Financial
Statements.
5
<PAGE>
US Airways Group, Inc.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements
include the accounts of US Airways Group, Inc. ("US Airways Group"
or the "Company") and its wholly-owned subsidiaries US Airways,
Inc. ("US Airways"), Piedmont Airlines, Inc., PSA Airlines, Inc.,
Allegheny Airlines, Inc., USAir Leasing and Services, Inc., USAir
Fuel Corporation, Material Services Company, Inc. and The OR
Group, Inc. ( "OR Group").
OR Group was a wholly-owned subsidiary of US Airways Group
that was incorporated in February 1996 and dissolved in the fourth
quarter of 1996. OR Group provided resource allocation consulting
services and decision-making support systems to US Airways, which
assumed these activities upon OR Group's dissolution.
US Airways terminated its Airline Technical Services, LLC
joint venture with a subsidiary of British Airways Plc, effective
January 1997. No material charges resulted from its termination.
Management believes that all adjustments necessary for a fair
statement of results have been included in the Condensed
Consolidated Financial Statements for the interim periods
presented, which are unaudited. All significant intercompany
accounts and transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certain 1996 amounts have been reclassified to conform with
1997 classifications.
These interim period Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated
Financial Statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
2. Income (Loss) Per Common Share
For the three month period ended March 31, 1997,
approximately 1,643,000 incremental shares of common stock were
included in the calculation of fully-diluted income (loss) per
common share as the result of applying the treasury stock method
to outstanding stock options. For the same period, the effects of
assuming conversion of the Company's outstanding preferred stock
issuances were dilutive and therefore included in the calculation.
The income and share effects of assuming conversion of the
Company's outstanding preferred stock issuances were approximately
$20,864,000 and 39,155,000 common stock shares, respectively.
3. Redeemable Preferred Stock
During the first quarter of 1997, the Company paid dividends
totaling $93.1 million to holders of its Series A, Series F and
Series T Preferred Stock (collectively the "Senior Preferred
Stock") (see Note 7 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996
6
<PAGE>
for a description of each series of Senior Preferred Stock),
including all dividends in arrears (including penalty dividends on
the deferred dividends) and regular quarterly dividends of $8.3
million on its Series A Preferred Stock.
4. Stockholders' Equity
On March 26, 1997, the Company's board of directors declared
dividends of $46.6 million on the Company's Series B Preferred
Stock. After these dividends, which were paid April 17, 1997, the
Company had paid all dividends in arrears on its Series B
Preferred Stock. Also on March 26, 1997, the Company's board of
directors declared regular quarterly dividends of $4.7 million on
the Series B Preferred Stock, to be paid on May 15, 1997.
On March 26, 1997, the Human Resource Committee of the
Company's board of directors approved the 1997 Stock Incentive
Plan of US Airways Group, Inc. ("1997 Plan"). Under this plan, the
Company is authorized to grant stock options and restricted common
stock awards provided that no more than 750,000 shares of the
Company's common stock are issued as a result of such awards. As
of March 31, 1997, 317,000 shares of the Company's common stock
were reserved for the exercise of stock options granted under the
1997 Plan.
5. Select Financial Information - USAM Investments
USAM owns 11% of the Galileo International Partnership,
approximately 11% of the Galileo Japan Partnership and
approximately 21% of the Apollo Travel Services Partnership
("ATS"). USAM accounts for these investments using the equity
method. The following is summarized financial information for
these partnerships (combined, in millions):
Three Months Ended
March 31,
------------------
1997 1996
----- ------
(Unaudited)
Service revenues $414 $376
Cost and expenses 318 296
--- ----
Net earnings $ 96 $ 80
USAM received distributions from ATS of approximately $1.7
million and $2.8 million, during the first three months of 1997
and 1996, respectively.
6. Subsequent Events
On May 8, 1997, US Airways announced that it will reduce
flying on some of its most unprofitable routes and close excess
facilities. The actions are part of its plan to ensure that it has
the strongest possible foundation as decisions are made about the
Company's ultimate strategic direction.
The announced actions include:
* Removing 22 excess aircraft from the fleet with US
Airways' last five F28-4000 aircraft removed from its
fleet by the end of summer 1997 and 17 older DC-9-30
aircraft to be retired in the coming months;
7
<PAGE>
* Ending unprofitable jet service to nine cities and
eliminating other routes that have not been profitable;
* Reducing capacity (ASMs) beginning this summer, resulting
in a year-over-year decrease of approximately 6.5% by
Summer 1998;
* Closing the flight crew base in Los Angeles for pilots and
flight attendants, starting in July of 1997 and completing
the process by February 1998;
* Consolidating reservations operations by closing
reservations centers in Utica, NY and Nashville, TN
effective in October 1997 (US Airways maintains
reservations centers in seven other cities), and;
* Closing maintenance facilities at Greensboro and Winston-
Salem, NC (except for a landing gear shop) and Roanoke, VA
beginning in September 1997 with a complete closure by the
end of 1998 (maintenance work currently performed at these
cities will be shifted to other locations).
The company said it will work closely with union leaders and
employee groups to minimize to the greatest degree possible the
impact of changes in operations on individuals, although there are
expected to be some employee furloughs.
US Airways is currently unable to estimate the cost savings,
revenue impact, or possible one-time charges associated with these
actions. US Airways may incur expenses related to employee
severance and asset dispositions, among other charges, related to
these actions.
(this space intentionally left blank)
8
<PAGE>
US Airways, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 (unaudited)
(in thousands)
1997 1996
---- ----
Operating Revenues
Passenger transportation $1,753,314 $1,551,579
Cargo and freight 43,301 37,308
US Airways Express
transportation revenues 144,571 -
Other 149,167 150,728
--------- ---------
Total Operating Revenues 2,090,353 1,739,615
Operating Expenses
Personnel costs 715,979 713,751
Aviation fuel 212,939 172,760
Commissions 135,701 123,535
Aircraft rent 106,207 102,415
Other rent and landing fees 95,582 96,357
Aircraft maintenance 81,362 86,539
Depreciation and amortization 73,172 77,738
US Airways Express
capacity purchases 120,923 -
Other, net 374,351 375,430
--------- ---------
Total Operating Expenses 1,916,216 1,748,525
--------- ---------
Operating Income (Loss) 174,137 (8,910)
Other Income (Expense)
Interest income 23,759 13,410
Interest expense (67,250) (71,447)
Interest capitalized 2,775 1,449
Equity in earnings of affiliates 13,418 11,262
Other, net 14,047 (402)
--------- ---------
Other Income (Expense), Net (13,251) (45,728)
--------- ---------
Income (Loss) Before Taxes 160,886 (54,638)
Provision for Income Taxes 17,257 292
--------- ---------
Net Income (Loss) $ 143,629 $ (54,930)
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements.
9
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US Airways, Inc.
Condensed Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996
(dollars in thousands, except per share amount)
March 31, December 31,
1997 1996
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 867,204 $ 950,134
Short-term investments 595,408 635,839
Receivables, net 456,022 342,718
Materials and supplies, net 201,495 211,184
Prepaid expenses and other 151,495 129,380
--------- ---------
Total Current Assets 2,271,624 2,269,255
Property and Equipment
Flight equipment 4,953,510 4,972,873
Ground property and equipment 1,092,917 1,087,178
Less accumulated depreciation
and amortization (2,425,649) (2,381,844)
--------- ---------
3,620,778 3,678,207
Purchase deposits 77,620 77,620
--------- ---------
Total Property and Equipment, Net 3,698,398 3,755,827
Other Assets
Goodwill, net 490,498 494,511
Other intangibles, net 284,189 283,274
Other assets, net 607,635 606,906
--------- ---------
Total Other Assets 1,382,322 1,384,691
--------- ----------
$7,352,344 $7,409,773
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 93,104 $ 84,171
Accounts payable 370,194 472,105
Payable to parent company 71,133 159,383
Traffic balances payable
and unused tickets 938,416 715,576
Accrued aircraft rent 423,504 495,662
Other accrued expenses 825,611 1,073,773
--------- ---------
Total Current Liabilities 2,721,962 3,000,670
Long-term Debt, Net of
Current Maturities 2,577,058 2,614,818
(continued on following page)
10
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US Airways, Inc.
Condensed Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996 (Continued)
(dollars in thousands, except per share amount)
March 31, December 31,
1997 1996
---- ----
Deferred Credits and Other Liabilities
Deferred gains, net 349,981 356,583
Postretirement benefits other
than pensions, non-current 1,111,848 1,093,269
Non-current employee benefit
liabilities and other 533,021 429,588
--------- ---------
Total Deferred Credits and
Other Liabilities 1,994,850 1,879,440
Commitments and Contingencies
Stockholder's Equity (Deficit)
Common stock, par value $1 per
share, authorized 1,000 shares,
issued and outstanding
1,000 shares 1 1
Paid-in capital 2,416,131 2,416,131
Retained earnings (deficit) (2,322,449) (2,466,078)
Adjustment for minimum
pension liability (35,209) (35,209)
--------- ---------
Total Stockholder's
Equity (Deficit) 58,474 (85,155)
--------- ---------
$7,352,344 $7,409,773
========= =========
See accompanying Notes to Condensed Consolidated Financial
Statements.
11
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US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 (unaudited)
(in thousands)
1997 1996
---- -----
Cash and cash equivalents
beginning of period $950,134 $879,613
------- -------
Cash flows from operating activities
Net income (loss) 143,629 (54,930)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities
Depreciation and amortization 73,172 77,738
Loss (gain) on disposition
of property (14,082) 3,466
Amortization of deferred
gains and credits (6,602) (6,603)
Other (500) (3,448)
Changes in certain assets
and liabilities
Decrease (increase) in
receivables (113,304) (122,925)
Decrease (increase) in
materials and supplies,
prepaid expenses and
pension assets (16,085) (11,564)
Increase (decrease) in
traffic balances
payable and unused
tickets 222,840 237,423
Increase (decrease) in
accounts payable,
accrued aircraft rent
and other accrued
expenses (407,155) (150,880)
Increase (decrease) in
postretirement
benefits other than
pensions, non-current 18,579 18,803
------- -------
Net cash provided by
(used for)
operating activities (99,508) (12,920)
Cash flows from investing activities
Aircraft acquisitions and purchase
deposits, net (5,538) (3,385)
Additions to other property (35,580) (27,979)
Proceeds from disposition
of property 40,175 3,483
Decrease (increase) in
short-term investments 35,710 (25,695)
Decrease (increase) in restricted
cash and investments 8,715 985
Other 1,923 (11,903)
------- -------
Net cash provided by (used for)
investing activities 45,405 (64,494)
(continued on following page)
12
<PAGE>
US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 (unaudited) (Continued)
(in thousands)
1997 1996
---- ----
Cash flows from financing activities
Issuance of debt - 103,002
Reduction of debt (28,827) (122,489)
------- -------
Net cash provided by (used for)
financing activities (28,827) (19,487)
------- -------
Net increase (decrease) in cash and
cash equivalents (82,930) (96,901)
------- -------
Cash and cash equivalents end of period $867,204 $782,712
======= =======
Noncash investing and financing activities
Issuance of debt - refinancing of
debt secured by aircraft $ - $159,998
Reduction of debt - refinancing of
debt secured by aircraft $ - $154,422
Reduction of parent company debt -
aircraft acquisitions $ - $ 68,640
Issuance of debt - aircraft
acquisitions $ - $ 4,585
Underwriter's fees - refinancing of
debt secured by aircraft $ - $ 2,488
Supplemental Information
Cash paid during the period for
interest, net of amount capitalized $ 84,026 $ 92,643
Net cash paid during the period
for income taxes $ 1,119 $ 100
See accompanying Notes to Condensed Consolidated Financial
Statements.
13
<PAGE>
US Airways, Inc.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements
include the accounts of US Airways, Inc. ("US Airways") and its
wholly-owned subsidiary USAM Corp. ("USAM"). US Airways is a
wholly-owned subsidiary of US Airways Group, Inc. ("US Airways
Group").
US Airways terminated its Airline Technical Services, LLC
joint venture with a subsidiary of British Airways Plc, effective
January 1997. No material charges resulted from its termination.
Management believes that all adjustments necessary for a fair
statement of results have been included in the Condensed
Consolidated Financial Statements for the interim periods
presented, which are unaudited. All significant intercompany
accounts and transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certain 1996 amounts have been reclassified to conform with
1997 classifications.
These interim period Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated
Financial Statements contained in US Airways' Annual Report on
Form 10-K for the year ended December 31, 1996.
2. Select Financial Information - USAM Investments
Please refer to Note 5 in US Airways Group's "Notes to
Condensed Consolidated Financial Statements" on Page 7 of this
report.
3. Subsequent Events
Please refer to Note 6 in US Airways Group's "Notes to
Condensed Consolidated Financial Statements" on Page 7 of this
report.
(this space intentionally left blank)
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
Item 2 of this report should be read in conjunction with Item
7 of US Airways Group, Inc.'s ("US Airways Group" or "the
Company") and US Airways, Inc.'s ("US Airways") Annual Report to
the United States Securities and Exchange Commission ("SEC") on
Form 10-K for the year ended December 31, 1996. The information
contained in Item 2 of this report does not represent a
comprehensive management overview and analysis of the financial
condition and results of operations of the Company and US Airways,
but rather updates disclosures made in the aforementioned filing.
The Company recognized net income of $152.7 million for the
first quarter of 1997 on operating revenues of $2.10 billion.
Income per common share for the quarter on a primary and fully-
diluted basis was $2.00 and $1.45, respectively (see Note 2 to the
Company's Condensed Consolidated Financial Statements contained in
Part I, Item 1A of this report for additional information related
to the Company's income per common share calculations). The
Company's operating income for the quarter was $175.6 million.
US Airways recorded net income of $143.6 million for the
first quarter of 1997. US Airways financial results, which include
the financial results of its wholly-owned subsidiary USAM Corp.
("USAM"), are significantly influenced by related party
transactions as discussed under "Results of Operations" below.
Except where noted, the following discussion relates
primarily to the financial condition, results of operations and
future prospects of US Airways. US Airways is the Company's
principal subsidiary and accounted for approximately 92% of the
Company's operating revenues for the first quarter of 1997 on a
consolidated basis.
Record First Quarter Financial and Operating Results
The Company's operating revenues, operating income and net
income for the first quarter of 1997 were all Company records for
a first quarter. Historically, the Company's first quarter results
have been its weakest during a fiscal year due primarily to
seasonality of demand for air transportation and to a lesser
extent weather factors. Operationally, the Company set first
quarter records for revenue passengers flown, revenue passenger
miles (the number of revenue passengers flown multiplied by the
miles they flew or "RPMs") and passenger load factor. In addition,
US Airways finished in the top tier in on-time performance among
major domestic air carriers for the first quarter of 1997, as
reported by the U.S. Department of Transportation ("DOT").
The Company's record first quarter financial results are
attributable to favorable domestic economic conditions, the
absence of the 10% Federal excise tax on domestic air
transportation ("ticket tax") for most of the quarter and
relatively favorable weather conditions in the Eastern U.S. See
also "Results of Operations" below.
Update on US Airways' Competitive Position
Despite the Company's recent favorable financial results, the
competitive threat posed by low cost, low fare air carriers and
operations continues to grow. US Airways' cost structure continues
to be the highest of all major domestic air carriers. Southwest
Airlines, Inc. ("Southwest"), a
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<PAGE>
competitor with low costs of operations and a low fare structure,
"Delta Express," the low cost, low fare product offered by Delta
Airlines, Inc. ("Delta"), and ValuJet Airlines, Inc. ("ValuJet"),
another low cost, low fare competitor, all have significant cost
advantages over US Airways. Direct competition with low cost, low
fare air carriers or operations has typically resulted in the
dilution of yield realized by the Company's airline subsidiaries,
depending on the number of markets affected.
Southwest recently announced that it will add one-stop same-
plane transcontinental service between Baltimore/Washington
International Airport ("BWI") and Oakland and Los Angeles
beginning in June 1997 (see below and "Other Information" for
recent developments regarding US Airways' operations at BWI).
Southwest continues to expand operations in the Eastern U.S. - the
Company is unable to predict the extent or rate at which Southwest
will deploy additional resources in this region. The Eastern U.S.
is the primary operating region of the Company's airline
subsidiaries.
The route network and capacity of Delta Express have remained
relatively unchanged since January 1997. The Company is unable to
predict where, when or to what extent, if any, Delta will expand
Delta Express operations. Delta Express currently operates
exclusively within the Eastern U.S.
ValuJet recently announced plans to resume service to
Charlotte effective May 15, 1997. Charlotte is home to US Airways'
largest hub in terms of daily jet departures. ValuJet, which
operated 51 aircraft prior to its service reduction during the
summer of 1996, operated 15 aircraft as of December 31, 1996 and
currently operates 25 aircraft. Prior to Valujet's service
reduction, approximately 8% of US Airways' capacity (as measured
by available seat miles or "ASMs") overlapped Valujet's route
structure. The Company is unable to predict whether ValuJet's
capacity in markets also served by US Airways will eventually
match or exceed previous levels.
The Company's senior management recently engaged in a series
of presentations to the Company's employees to explain and
emphasize its view that the Company must obtain a competitive cost
structure in order to implement the strategy of becoming an
effective global competitor. In particular, senior management
identified reductions in personnel costs as being the key to the
implementation of a competitive cost structure. In the
presentations, senior management stated its view that a
competitive cost structure was necessary in order for the Company
to compete with low-cost air carriers such as Southwest, Delta
Express and ValuJet, which have continued their rapid expansion in
Eastern U.S. markets, and for the Company to be in a position to
proceed with its planned purchase of approximately 400 Airbus
Industrie ("Airbus") aircraft. The Company's senior management
further indicated that the implications of not obtaining a
competitive cost structure include: (i) downsizing BWI operations;
(ii) reducing Florida service; (iii) terminating unprofitable
east/west and north/south routes; (iv) reducing aircraft type and
achieving aircraft fleet rationalization; (v) not affirming the
order for Airbus aircraft; and (vi) making other operational
changes to implement a "right-sizing" strategy. If and to the
extent that the alternatives pursued include reducing certain
operations, the Company could incur charges such as those related
to any resulting decrease in value of certain assets employed in
such operations. No final decisions have been made with respect to
such alternatives and, accordingly, the Company cannot determine
the amount of any such possible charges.
On May 8, 1997, US Airways announced that it will reduce
flying on some of its most unprofitable routes and close excess
facilities. The actions are part of its plan to ensure that it has
the strongest possible foundation as decisions are made about the
Company's ultimate strategic direction.
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The announced actions include:
* Removing 22 excess aircraft from the fleet with US
Airways' last five F28-4000 aircraft removed from its
fleet by the end of summer 1997 and 17 older DC-9-30
aircraft to be retired in the coming months;
* Ending unprofitable jet service to nine cities and
eliminating other routes that have not been profitable;
* Reducing capacity (ASMs) beginning this summer, resulting
in a year-over-year decrease of approximately 6.5% by
Summer 1998;
* Closing the flight crew base in Los Angeles for pilots and
flight attendants, starting in July of 1997 and completing
the process by February 1998;
* Consolidating reservations operations by closing
reservations centers in Utica, NY and Nashville, TN
effective in October 1997 (US Airways maintains
reservations centers in seven other cities), and;
* Closing maintenance facilities at Greensboro and Winston-
Salem, NC (except for a landing gear shop) and Roanoke, VA
beginning in September 1997 with a complete closure by the
end of 1998 (maintenance work currently performed at these
cities will be shifted to other locations).
The company said it will work closely with union leaders and
employee groups to minimize to the greatest degree possible the
impact of changes in operations on individuals, although there are
expected to be some employee furloughs.
US Airways is currently unable to estimate the cost savings,
revenue impact, or possible one-time charges associated with these
actions. US Airways may incur expenses related to employee
severance and asset dispositions, among other charges, related to
these actions.
Resumption of Regular Dividend Payments on Preferred Stock
On March 26, 1997, the Company paid dividends totaling $34.8
million to holders of its Series A, Series F and Series T
Preferred Stock (collectively the "Senior Preferred Stock") (see
Note 7 and Note 8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 for a description of each of the
Company's outstanding preferred stock issuances). After these
dividends, the Company had paid all dividends in arrears
(including penalty dividends on the deferred dividends) on its
Senior Preferred Stock. The Company also paid a regular quarterly
dividend of $8.3 million on its Series A Preferred Stock on
March 31, 1997.
On March 26, 1997, the Company's board of directors declared
dividends of $46.6 million on the Company's Series B Preferred
Stock. After these dividends, which were paid on April 17, 1997,
the Company had paid all dividends in arrears on its Series B
Preferred Stock. Also on March 26, 1997, the Company's board of
directors declared a regular quarterly dividend of $4.7 million on
the Series B Preferred Stock, to be paid on May 15, 1997.
Although the Company has resumed regular dividend payments on
its outstanding preferred stock issuances, future dividend
payments by the Company are primarily dependent on the Company's
future financial performance and decisions by its board of
directors. There can be no assurance that the Company's current
positive financial performance will continue or if the Company
will be able to maintain a capital surplus position based on its
balance sheet, as defined under the laws of the State of Delaware.
17
<PAGE>
US Airways Shuttle
On April 7, 1997, the Company exercised its right to commence
a procedure to value Shuttle, Inc. ("Shuttle"), the owner of the
US Airways Shuttle, in accordance with the agreement between the
Company, lenders to Shuttle and Shuttle's stockholders. Following
the establishment of such a value, the Company has an option to
purchase Shuttle at the established value. If the Company declines
to purchase Shuttle at the established value it will continue to
have a right of first refusal with respect to a purchase of the
assets or capital stock of Shuttle. Initiation of the valuation
procedure does not represent a commitment by the Company to
purchase Shuttle and there can be no assurance that any such
purchase will occur. Any decision by the Company to purchase
Shuttle either through the valuation procedure or the right of
first refusal will be made based on prices and related business
considerations.
The US Airways Shuttle currently operates a fleet of 12
Boeing 727-200 aircraft and provides high frequency service from
New York to Boston and Washington, DC.
Other Information
US Airways will move a majority of its international
operations at BWI to Philadelphia effective June 15, 1997. These
schedule adjustments are being made to further enhance the
efficiency of US Airways' route network and take advantage of the
traffic base and connection opportunities provided by US Airways'
facilities at Philadelphia, US Airways' primary international
gateway. These schedule adjustments will result in the elimination
of approximately 240 full-time and part-time customer service and
maintenance positions at BWI.
US Airways will launch a second daily non-stop flight between
Philadelphia and Paris on June 14, 1997. US Airways, which has
filed with the DOT to serve London's Heathrow Airport from Boston,
Charlotte, Philadelphia and Pittsburgh, continues to explore
additional international opportunities.
On April 28, 1997, the Company filed a registration statement
with the SEC providing for a public offering of the preferred
stock currently held by an affiliate of British Airways Plc
("British Airways"). The Company will not receive any proceeds
from the offering and the sale of the securities will be carried
out by British Airways. The Company's filing of the registration
statement, which as of the date of this report had not been
declared "effective" by the SEC, is in response to a request made
by British Airways under the provisions of an investment agreement
between the Company and British Airways. This disclosure does not
constitute an offer to sell or a solicitation of an offer to buy
these securities. In addition, there can be no sale of these
securities in any state in which an offer, solicitation or sale
would be unlawful prior to registration or qualification under the
laws of that state.
Results of Operations
The following section provides an overview of changes in
certain components of the Company's results of operations (the
Company's Condensed Consolidated Statements of Operations are
contained in Part I, Item 1A of this report). See Exhibit 99 to
this report for select US Airways operating and financial
statistics (which also includes the definition of certain terms
used below). All terms used in this section refer to US Airways'
scheduled service operations except for unit operating cost, which
also includes charter service.
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The Company recorded net income of $152.7 million for the
first quarter of 1997, an improvement of $185.0 million as
compared to the first quarter of 1996. After preferred dividend
requirement (the Company reflects dividends on all its outstanding
preferred stock as if paid during the period for purposes of
calculating income per common share), the Company earned $131.8
million, or $2.00 per common share on a primary basis and $1.45 on
a fully-diluted basis. See discussion under "Record First Quarter
Financial and Operating Results" above.
US Airways' revenue passengers, RPMs, capacity (ASMs), and
passenger load factor all increased quarter-over-quarter. With the
exception of the capacity increase, these statistics improved
primarily as a result of the factors discussed above under "Record
First Quarter Financial and Operating Results." The quarter-over-
quarter capacity increase was due mainly to increased aircraft
utilization during the first quarter of 1997. Aircraft utilization
during the first quarter of 1996 was adversely affected by
inclement weather.
US Airways' yield was slightly lower quarter-over-quarter.
The Company's airline subsidiaries are experiencing increased
competitive pressure with the October 1996 launch of Delta
Express, Southwest's late-October 1996 expansion into the
Northeast U.S. Direct competition with low cost, low fare air
carriers or operations has typically resulted in the dilution of
yield realized by the Company's airline subsidiaries, depending on
the number of markets affected. In addition, US Airways' average
passenger journey increased resulting in an "averaging-down" of
yield quarter-over-quarter.
US Airways continues to be the highest cost major domestic
air carrier. US Airways' unit operating cost was 12.35 cents for
the first quarter of 1997 or 3.6% lower than for the first quarter
of 1996 due primarily to increased capacity quarter-over-quarter.
The Company recently disclosed (in a Current Report on Form
8-K to the SEC dated April 23, 1997) that it expects US Airways'
capacity to increase approximately 5% and US Airways' unit
operating cost to decrease approximately 4% for the second quarter
of 1997, as compared to the second quarter of 1996. The Company
anticipates that US Airways' unit operating cost for full-year
1997 will decrease approximately 3.5% versus full-year 1996. The
Company's unit operating cost estimates are dependent on several
factors, most notably future fuel costs. The Company also
disclosed that it expects US Airways' yield to decrease
approximately 3% - 4% for second quarter 1997 versus second
quarter 1996 due primarily to the effects of the ticket tax (which
was not present during the second quarter of 1996) and the fact
that US Airways' average passenger journey continues to increase.
However, see discussion under "Update on US Airways' Competitive
Position" above related to US Airways' subsequent announcement
that it would reduce flying on some of its most unprofitable
routes and close excess facilities.
Operating Revenues
Passenger Transportation - US Airways' Passenger transportation
revenues increased $201.7 million, or 13.0%, with the remainder of
the $219.3 million increase attributable to passengers carried by
the Company's regional airline subsidiaries. US Airways' increase
is primarily the result of a 13.7% increase in scheduled service
RPMs partially offset by a 0.6% decrease in yield. The main
factors contributing to the Company's improved performance are
discussed under "Record First Quarter Financial and Operating
Results" above. In addition, the Company estimates that severe
winter weather within the Eastern U.S. and the partial Federal
Government shutdown adversely affected first quarter 1996 revenues
by approximately $55 million.
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Other Operating Revenues - Fees received for passenger handling
and reservation services from franchised US Airways Express air
carriers increased due to higher passenger volumes carried by
these air carriers and a higher fee structure. In addition, US
Airways revenues from frequent traveler program participation fees
and reservation cancellation fees increased quarter-over-quarter.
Wet lease revenues decreased approximately $8.8 million quarter-
over-quarter due to the phase-out of these arrangements during the
first half of 1996. Increases or decreases in components of Other
operating revenues are largely offset by related changes in Other
operating expenses, net or other operating expense categories. US
Airways' results include certain transactions with related parties
that are eliminated at the US Airways Group level.
US Airways' Operating Revenues include the line item "US
Airways Express transportation revenues." Effective October 1,
1996, US Airways began purchasing all of the capacity (ASMs)
generated by the Company's three wholly-owned regional air
carriers and, concurrently, recognizes the passenger
transportation revenues that result from passengers being carried
by these companies. The rate per ASM that US Airways pays is based
on estimates of the costs incurred to produce the capacity. The
program is designed to reflect the reality of US Airways'
relationship with the Company's regional airline subsidiaries - US
Airways controls the markets these air carriers operate in, the
marketing programs and the fares charged. US Airways' revenues
from this program are reclassified to Passenger transportation
revenues and the related expenses eliminated during the
consolidation of the Company's results of operations.
Operating Expenses
Personnel Costs - Personnel complement increases and expenses
associated with stock appreciation rights ("SARs") were partially
offset by interest rate driven decreases in pension and
postretirement benefits expenses. US Airways recognized expenses
of $5.5 million related to SARs in the first quarter of 1997. To
the extent the fair market value of a share of its Common Stock
exceeds $15, the Company recognizes compensation expense based on
the number of SARs outstanding. During the first quarter of 1996,
the Company recognized expenses of approximately $10.1 million
related to restricted stock grants, sign-on bonuses, severance
payments and other compensation related to management changes. US
Airways had approximately 40,300 full-time equivalent employees as
of March 31, 1997 versus 39,900 full-time equivalent employees as
of March 31, 1996.
Aviation Fuel - US Airways' Aviation fuel expense increased $40.2
million or 23.3% quarter-over-quarter. US Airways' fuel
consumption increased 16 million gallons or 6.0% quarter-over-
quarter primarily due to increased aircraft utilization. US
Airways' average cost of aviation fuel per gallon during the first
quarter of 1997 was 75.44 cents versus 64.99 cents for the first
quarter of 1996 (a 16.1% increase). Effective first quarter of
1997, the Company classifies fuel taxes as an element of Aviation
fuel expense. These expenses were previously an element of Other
operating expense (prior period results have been restated for
this reclassification). Aviation fuel prices are subject to market
conditions and other factors that are generally outside of the
Company's control. Fluctuations in the price of aviation fuel can
have a dramatic effect on the Company's results of operations.
Commissions - Increased due to higher Passenger transportation
revenues.
Aircraft Rent - Increased due primarily to a rent expense
adjustment of $7.2 million recorded in the first quarter of 1997
related to certain US Airways Fokker F28-4000 aircraft.
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<PAGE>
Aircraft Maintenance - US Airways is beginning to realize savings
associated with the "power-by-the-hour" maintenance contract
covering certain jet engines it entered into during the fourth
quarter of 1996.
Depreciation and Amortization - Decreased due mainly to certain
ground equipment and other assets becoming fully depreciated.
Other Operating Expenses, Net - Expenses related to the wet lease
arrangement with British Airways decreased $8.8 million (see also
Other Operating Revenues above). This decrease was partially
offset by increases in credit card expenses linked to higher
Passenger transportation revenues. See also Aviation Fuel above
related to fuel taxes.
US Airways' Operating Expenses include the line item "US
Airways Express capacity purchases." These expenses, which are
eliminated during the consolidation of the Company's results of
operations, are discussed under Operating Revenues above.
Other Income (Expense)
Interest Income - Increased due mainly to higher Cash and cash
equivalents and Short-term investments balances.
Interest Expense - Decreased primarily as the result of less long-
term debt outstanding quarter-over-quarter and the effects of
refinancing at a lower interest rate certain debt during the first
quarter of 1996.
Equity in Earnings of Affiliates - Results for all three of USAM's
computer reservation system investments improved primarily due to
increases in airline industry passenger volumes quarter-over-
quarter.
Other, Net - Results for the first quarter of 1997 included gains
totaling $16.6 million related to US Airways' sale of nine Boeing
737-200 and one F28-4000 aircraft.
Provision for Income Taxes - Increased primarily due to increased
income and an increase in the Company's effective tax rate as of a
result of the Company's projected utilization of all remaining
alternative minimum tax net operating loss carryforwards during
1997.
In February 1997, the Financial Accounting Standards Board
adopted Statement No. 128, "Earnings per Share" ("SFAS 128"). This
statement specifies new computation, presentation and disclosure
requirements for reporting income per common share. The provisions
of SFAS 128 preclude the Company from implementing the new
standard prior to December 31, 1997, however, the Company believes
that the implementation of SFAS 128 will not have a material
impact on its income per common share disclosures for the first
period affected or on prior period income per common share
amounts, which must be restated to conform with the provisions of
SFAS 128.
Liquidity and Capital Resources
As of March 31, 1997, the Company's Cash and cash equivalents
totaled $868.8 million and its Short-term investments totaled
$595.4 million. As of March 31, 1997, US Airways also had $65.3
million deposited in trust accounts to collateralize letters of
credit and worker's compensation policies. These deposits are
included in Other assets, net on the Company's Condensed
Consolidated Balance Sheets (which are contained in Part I, Item
1A of this report).
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As indicated in the Company's Condensed Consolidated
Statements of Cash Flows (which are also contained in Part I, Item
1A of this report), net cash used for operations during the first
quarter of 1997 was $8.3 million which includes the remittance of
ticket taxes to the Federal government and final profit sharing
payments to certain employees (see following paragraph). The
Company has historically experienced a net cash outflow related to
operating activities during its first fiscal quarter due primarily
to seasonality factors combined with the occurrence of significant
semi-annual lease and debt payments due in the month of January.
USAM received distributions totaling $1.7 million from its
computer reservation systems investments during the first quarter
of 1997, as reflected in the Other operating adjustments category.
During the first quarter of 1997, US Airways remitted ticket
taxes collected in 1996 of approximately $180 million to the
Federal government. The Company also made profit sharing payments
to employees totaling $129.1 million during first quarter 1997.
These payments ended the Company's obligation for profit sharing
under its 1992 Salary Reduction Plan (the related expenses were
recognized by the Company during 1996 and earlier periods).
SAR exercises resulted in a cash outflow of $12.9 million
during the first quarter of 1997. Future SAR exercises could have
a material adverse effect on the Company's future cash outflows
depending on the number and timing of SAR exercises and the fair
market value of a share of the Company's Common Stock when
exercises occur. As of March 31, 1997, approximately 2.8 million
SARs granted under the 1992 Stock Option Plan remained
outstanding. During April 1997, SAR exercises resulted in a cash
outflow of $15.0 million.
Investing activities during the first quarter of 1997
included cash outflows of $43.7 million for the acquisition of
assets and cash inflows of $40.5 million related to asset
dispositions, primarily US Airways' sale of nine 737-200 aircraft
and one F28-4000 aircraft. Cash outflows related to the
acquisition of assets include $6.0 million to purchase gates at
Washington National Airport, $3.9 million to purchase four Douglas
DC-9-30 aircraft upon expiration of the related operating leases,
$9.3 million for hush kits, $7.0 million for third-party
maintenance performed on certain subleased US Airways aircraft and
approximately $17.5 million related to the purchase of rotables,
other aircraft components (including items associated with US
Airways' Aircraft Interior Upgrade and Standardization Program),
computer equipment and various ground support and other equipment.
The Company's Short-term investments decreased $35.7 million from
the year-end 1996 level due to the Company's need to fulfill
certain immediate operational needs (see discussion above
regarding cash outflows related to ticket taxes and profit sharing
payments). The net cash provided by investing activities during
the first quarter of 1997 was $43.2 million.
Net cash used by financing activities during the first
quarter of 1997 was $117.0 million. The Company's subsidiaries
made scheduled debt repayments of approximately $19.6 million and
US Airways prepaid early capital lease obligations of $9.2 million
associated with three DC-9-30 aircraft (and assumed title of the
aircraft). In addition, the Company paid dividends totaling $93.1
million to holders of its Senior Preferred Stock during the first
quarter. The Company paid dividends of $46.6 million to holders of
its Series B Preferred Stock on April 17, 1997. The annual
dividend requirements of the Company's outstanding preferred stock
issuances total approximately $79 million. See "Resumption of
Regular Dividend Payments on Preferred Stock" above for additional
information.
US Airways has agreements with an affiliate of Airbus for the
acquisition of up to 400 Airbus aircraft. The agreements with
Airbus remain subject to US Airways achieving a competitive cost
structure, but obligate US Airways to inform Airbus by September
30, 1997 of whether or not it will proceed with the acquisition of
the aircraft contemplated thereby. If an aircraft acquisition
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<PAGE>
agreement with Airbus is consummated, the Company's estimate of
short-term and long-term capital expenditures and/or lease
commitments will be materially affected.
As discussed under "US Airways Shuttle" above, the Company is
investigating the purchase of Shuttle, Inc., the owner of the US
Airways Shuttle. The Company's purchase of Shuttle, Inc. would
result in a material capital expenditure.
The Company expects to satisfy all of its short-term
liquidity requirements, including dividend payments on preferred
stock and the cost of US Airways' aircraft interior upgrade and
standardization program, through a combination of cash on hand and
cash generated from operations. However, the Company remains
highly leveraged. The Company and US Airways require substantial
working capital in order to meet scheduled debt and lease payments
and to finance day-to-day operations. In addition, the Company
currently does not have access to short-term credit or receivable
sale facilities. Changes in certain factors that are generally
outside the Company's control, such as an economic downturn,
additional government regulation, intensified competition from low
cost, low fare air carriers or operations (see related discussion
above) and further increases in the cost of aviation fuel, could
have a material adverse effect on the Company's liquidity,
financial condition and results of operations. US Airways' high
cost structure relative to its primary competitors results in the
Company's results of operations and financial condition being
particularly susceptible to adverse changes in general economic
and market conditions.
As of March 31, 1997, the Company's ratio of current assets
to current liabilities was approximately 0.86 to 1 and the debt
component of the Company's capitalization structure was greater
than 100% (and also greater than 100% if the three series of
mandatorily redeemable preferred stock are considered to be debt)
due to a deficit in stockholders' equity.
Certain information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" should
be considered "forward-looking information" which is subject to a
number of risks and uncertainties. The preparation of forward-
looking information requires the use of estimates of future
revenues, expenses, activity levels and economic and market
conditions, many of which are outside the Company's control. Among
the specific factors that could cause actual results to differ
materially from those set forth in the forward-looking information
are the following: labor costs, or, in the alternative, not
putting in place a competitive cost structure, aviation fuel
costs, competitive pressures on pricing particularly from low cost
air carriers, weather conditions, consumer perceptions of the
Company's product, demand for air transportation in the markets in
which the Company operates and the risks listed from time to time
in the Company's reports to the SEC. Other factors and assumptions
not identified above are also involved in the preparation of
forward-looking information, and the failure of such other factors
and assumptions to be realized may also cause actual results to
differ materially from those discussed. The Company assumes no
obligation to update such estimates to reflect actual results,
changes in assumptions or changes in other factors affecting such
estimates.
Part II. Other Information
Item 1. Legal Proceedings
There are no significant developments in the pending legal
proceedings as previously reported on the Annual Report of US
Airways Group, Inc. and US Airways, Inc. on Form 10-K for the year
ended December 31, 1996, and no new material legal proceedings
have commenced during the time period covered by this interim
report.
23
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Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
10 1997 Stock Incentive Plan of US Airways Group, Inc.
11 Computation of Primary and Fully-Diluted Earnings
Per Share for the three months ended March 31, 1997
and 1996 for US Airways Group, Inc.
27.1 Financial Data Schedule - US Airways Group, Inc.
27.2 Financial Data Schedule - US Airways, Inc.
99 Airline Operating Statistics for the three months
ended March 31, 1997 and 1996 for US Airways, Inc.
B. Reports on Form 8-K
Date of Report Subject of Report
March 20, 1997 Letter, dated March 14, 1997, from British
Airways Plc ("British Airways") to US Airways
Group, Inc. ("US Airways Group") giving notice
that British Airways' wholly-owned subsidiary,
BritAir Acquisition Corp. Inc. ("BritAir")
intends to sell in one or more underwritten
public offerings or privately negotiated
transactions all of the 9,919.8 shares of
Series T Cumulative Convertible Exchangeable
Senior Preferred Stock of US Airways Group
which are owned by BritAir.
April 7, 1997 US Airways Group exercised its right to
commence a procedure to value Shuttle, Inc.
("Shuttle"), the owner of the US Airways
Shuttle, in accordance with standards set forth
in the agreement between US Airways Group,
lenders to the Shuttle and stockholders of the
Shuttle.
April 28, 1997 News release dated April 23, 1997 of US Airways
Group and US Airways, Inc. ("US Airways") with
consolidated statements of operations for both
companies for the three months ended March 31,
1997, and select operating results for US
Airways.
May 8, 1997 News release dated May 8, 1997 of US Airways
announcing that it will reduce flying on some
of its most unprofitable routes and close
excess facilities.
(this space intentionally left blank)
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Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
US Airways Group, Inc.
(Registrant)
Date: May 9, 1997 By: /s/ James A. Hultquist
---------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
US Airways, Inc.
(Registrant)
Date: May 9, 1997 By: /s/ James A. Hultquist
---------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
(this space intentionally left blank)
25
EXHIBIT 10
1997 STOCK INCENTIVE PLAN
OF
US AIRWAYS GROUP, INC.
1. PURPOSE. The purpose of this Stock Incentive Plan
is to advance the interests of the Corporation by encouraging the
acquisition of a larger personal proprietary interest in the
Corporation by key employees of the Corporation and of its
Subsidiaries upon whose judgment and dedication the Corporation
is largely dependent for the successful conduct of its business.
It is anticipated that the acquisition of such proprietary
interest in the Corporation will stimulate the efforts of such
key employees on behalf of the Corporation and strengthen their
desire to remain with the Corporation or its Subsidiaries and
that the opportunity to acquire such a proprietary interest will
enable the Corporation and its Subsidiaries to attract and retain
desirable personnel.
2. DEFINITIONS. When used in this Plan, unless the
context otherwise requires:
(a) "Affiliate" shall mean a person or entity that
directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is
under common control with, the Corporation.
(b) "Board" shall mean the Board of Directors of the
Corporation.
(c) "Cause" shall mean an act or acts of personal
dishonesty taken by optionee and intended to result
in substantial personal enrichment at the expense of
the Corporation or any of its Subsidiaries or the
conviction of optionee of a felony.
(d) "Change of Control" shall mean:
(i) The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of the
Corporation (the "Outstanding Group Common Stock") or
<PAGE>
(B) the combined voting power of the then outstanding
voting securities of the Corporation entitled to vote
generally in the election of directors (the
"Outstanding Group Voting Securities"); provided,
however, that the following acquisitions shall not
constitute a Change of Control: (w) any acquisition
directly from the Corporation, (x) any acquisition by
the Corporation or any of its Subsidiaries, (y) any
acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or
any of its Subsidiaries, or (z) any acquisition by
any corporation with respect to which, following such
acquisition, more than 85% of, respectively, the then
outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation
entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the
individuals and entities who were the beneficial
owners, respectively, of the Outstanding Group Common
Stock and Outstanding Group Voting Securities
immediately prior to such acquisition, in
substantially the same proportions as their
ownership, immediately prior to such acquisition, of
the Outstanding Group Common Stock and Outstanding
Group Voting Securities, as the case may be; or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of
the Board; provided, however, that any individual
becoming a director subsequent to the date hereof
whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of
at least a majority of the directors then comprising
the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other
2
<PAGE>
actual or threatened solicitation of proxies or
consents; or
(iii) Approval by the shareholders of the
Corporation of a reorganization, merger or
consolidation, in each case, with respect to which
all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock
and Outstanding Group Voting Securities immediately
prior to such reorganization, merger or consolidation
do not following such reorganization, merger or
consolidation, beneficially own, directly or
indirectly, more than 85% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such reorganization, merger or
consolidation in substantially the same proportions
as their ownership, immediately prior to such
reorganization, merger or consolidation of the
Outstanding Group Common Stock and Outstanding Group
Voting Securities, as the case may be; or
(iv) Approval by the shareholders of the
Corporation of (x) a complete liquidation or
dissolution of the Corporation or (y) the sale or
other disposition of all or substantially all of the
assets of the Corporation, other than to a
corporation, with respect to which following such
sale or other disposition, more than 85% of,
respectively, the then outstanding shares of common
stock of such corporation and the combined voting
power of the then outstanding voting securities of
such corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all
of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding
Group Common Stock and Outstanding Group Voting
Securities immediately prior to such sale or other
disposition in substantially the same proportion as
their ownership, immediately prior to such sale or
other disposition, of the Outstanding Group Common
3
<PAGE>
Stock and Outstanding Group Voting Securities, as the
case may be; or
(v) The acquisition by an individual, entity or
group of beneficial ownership of 20% or more of the
then outstanding securities of the Corporation,
including both voting and non-voting securities,
provided, however, that such acquisition shall only
constitute a change of control in the event that such
individual, entity or group also obtains the power to
elect by class vote, cumulative voting or otherwise
to appoint 20% or more of the total number of
directors to the Board.
(e) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(f) "Committee" shall mean the Human Resources Committee
of the Board or such other committee as may be
designated by the Board.
(g) "Corporation" shall mean US Airways Group, Inc.
(h) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations
promulgated thereunder.
(i) "Fair Market Value" shall mean the average of the
high and low sales prices of the Shares as reported
on the New York Stock Exchange Composite Tape on the
date as of which such value is being determined or,
if there shall be no sale on that date, then on the
last previous day on which a sale was reported,
provided, however, that during the 60-day period from
and after a Change of Control, "Fair Market Value"
shall mean, other than in the case of Shares subject
to incentive stock options, as defined in the Code,
the higher of (X) the highest reported sales price,
regular way, of Shares on the New York Stock Exchange
Composite Tape during the 60-day period prior to the
Change of Control and (Y) if the Change of Control is
the result of a transaction or series of transactions
described in paragraphs (i), (iii) or (iv) of the
definition of "Change of Control" herein, the highest
price for Shares paid in such transaction or series
4
<PAGE>
of transactions which in the case of such paragraph
(i) shall be the highest price for Shares as
reflected in a Schedule 13D filed under the Exchange
Act by the person having made the acquisition.
(j) "Options" shall mean the stock options issued
pursuant to Section 5 hereof.
(k) "Plan" shall mean the 1997 Stock Incentive Plan of US
Airways Group, Inc., as such Plan may be amended from
time to time.
(l) "Restricted Period" means the period selected by the
Committee pursuant to Section 6 hereof.
(m) "Restricted Stock" means Shares which have been
awarded to a grantee subject to the restrictions
referred to in Section 6 hereof so long as such
restrictions are in effect.
(n) "Share" shall mean a share of common stock of the
Corporation.
(o) "Subsidiary" shall mean any corporation more than 50%
of whose stock having general voting power is owned
by the Corporation or by a Subsidiary of the
Corporation.
3. ADMINISTRATION. The Plan shall be administered by the
Committee which, unless otherwise determined by the Board, shall
consist of not less than two directors of the Corporation, each
of whom shall qualify as a "disinterested director" (within the
meaning of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act) and as an "outside director" (within the meaning of
Section 162(m)(4)(c) of the Code). No more than 750,000 Shares,
which may be either treasury Shares or authorized but unissued
Shares, of the Corporation's common stock in the aggregate,
except to the extent of adjustments authorized by Section 11
hereof, may be issued pursuant to Options and Restricted Stock
awards granted under this Plan. Any Shares subject to Options or
Restricted Stock awards may thereafter be subject to new grants
under this Plan if there is a lapse, expiration or termination of
any such Options or Restricted Stock awards prior to issuance of
the Shares or if Shares are issued hereunder and thereafter
5
<PAGE>
reacquired by the Corporation pursuant to rights reserved by the
Corporation in connection with the issuance thereof. No
individual may be granted Options or Restricted Stock awards with
respect to more than an aggregate of 750,000 Shares in any one
calendar year.
The Committee may authorize and establish such rules,
regulations and revisions thereof not inconsistent with the
provisions of the Plan, as it may determine advisable to make the
Plan, Options, and Restricted Stock effective or provide for
their administration, and may take such other action with regard
to the Plan, Options, and Restricted Stock as it shall deem
desirable to effectuate their purpose. The Committee may require
that any Options granted be exercisable in installments. A
determination of the Committee as to any questions which may
arise with respect to the interpretation of the provisions of the
Plan, Options and Restricted Stock shall be final.
4. PARTICIPANTS. Options and Restricted Stock may be
granted under the Plan to any key employee of the Corporation or
any Subsidiary or to any individual in contemplation of becoming
a key employee of the Corporation or any Subsidiary; provided,
however, that neither Options nor Restricted Stock may be granted
to any individual who, at the time of grant, is an officer of the
Corporation or any of its Subsidiaries. Subject to the preceding
sentence, the individuals to whom Options and Restricted Stock
are to be offered under the Plan and the number of Shares to be
optioned and Restricted Stock to be issued to each such
individual shall be determined by the Committee in its sole
discretion, subject, however, to the terms and conditions of the
Plan.
5. OPTIONS. The number of Shares to be optioned to any
eligible person shall be determined by the Committee in its sole
discretion. The Committee shall be entitled to issue Options at
different times to the same person. Options shall be subject to
such terms and conditions and evidenced by agreements in such
form as shall be determined from time to time by the Chief
Executive Officer, provided that the terms and conditions of each
such agreement are not inconsistent with this Plan.
The purchase price per Share for the Shares to be purchased
pursuant to the exercise of any Option shall be fixed by the
6
<PAGE>
Committee, but shall not be less than 100% of the Fair Market
Value of the Shares on the date such Option is granted; provided,
however, for purposes of any grant of Options by the Committee
the meaning of Fair Market Value shall be as defined in Section
2(i) hereof without regard to the proviso in such definition. No
Option granted under the Plan shall be exercisable after ten
years and one month from the date it was granted or such earlier
date as shall be established by the Committee in granting the
Option.
Except as otherwise provided herein, an Option shall be
exercisable by the holder at such rate and times as may be fixed
by the Committee; provided, however, upon a Change of Control,
all Options may become immediately exercisable, to be determined
by action of the Committee in its sole discretion. The Committee
may provide that the Option shall not be exercisable, in whole or
in part, except upon the fulfillment of specific defined
conditions. No Option may at any time be exercised in part with
respect to fewer than 100 Shares unless fewer than 100 Shares
remain in the Option grant being exercised.
Options shall be exercised by written notice to the
Secretary of the Corporation (or the Secretary's designated
agent) in such form as is from time to time prescribed by the
Committee and by the payment in full of the aggregate exercise
price of the Options being exercised. Payment of the purchase
price upon exercise of any Option shall be made (A) in cash or
(B) in whole or in part, (i) in Shares valued at Fair Market
Value on the date of exercise or (ii) by electing to have the
Corporation withhold a number of shares of common stock otherwise
receivable upon exercise, the value of such withheld shares
determined by the Fair Market Value on the date of exercise;
provided, however, that during the 60-day period from and after a
Change of Control all optionees with respect to any or all of
their respective Options shall, to the extent specifically
provided by the Committee either at the time of grant or at any
subsequent time, have the right, in lieu of the payment of the
full option price of the Shares being purchased under the Options
and by giving written notice to the Corporation in form
satisfactory to the Committee, to elect (within such 60-day
period) to surrender all or part of the Options to the
Corporation and to receive in cash an amount equal to the amount
by which the Fair Market Value of Shares on the date of exercise
exceeds the option price per Share under the Options multiplied
by the number of Shares granted under the Options as to which the
7
<PAGE>
right granted by this proviso shall have been exercised. Such
written notice shall specify the optionee's election to purchase
Shares granted under the Options or to receive the cash payment
referred to in the proviso to the immediately preceding sentence.
6. RESTRICTED STOCK. Subject to the terms of the Plan,
the Committee shall determine and designate the recipients of
Restricted Stock awards, the dates on which such awards are to be
granted, the number of Shares subject to such awards, and the
restrictions applicable to such awards. Restricted Stock awards
shall be subject to such terms and conditions and evidenced by
agreements in such form as shall be determined from time to time
by the Chief Executive Officer, provided that the terms and
conditions of each such agreement are not inconsistent with this
Plan.
7. NONTRANSFERABILITY OF OPTIONS AND RESTRICTED STOCK.
Except as otherwise provided by the Committee, Options and
Restricted Stock shall not be transferable by the holder thereof
otherwise than by will or the laws of descent and distribution to
the extent provided herein, and Options may be exercised during
the holder's lifetime only by the holder thereof.
8. TAX WITHHOLDING. If as a result of: (a) the
exercise of any Options or the disposition of any Shares acquired
pursuant to such exercise, or (b) the lapse of any restrictions
on the disposition of Restricted Stock, the Corporation or
Subsidiary shall be required to withhold any amounts by reason of
any Federal, state or local tax rules or regulations, the
Corporation or Subsidiary shall be entitled to deduct and
withhold such amounts from any cash payments to be made to the
holder. In any event, the holder shall make available to the
Corporation or Subsidiary, promptly when required, sufficient
funds to meet the requirement for such withholding; and the
Committee shall be entitled to take and authorize such steps as
it may deem advisable in order to have such funds available to
the Corporation or Subsidiary when required. Notwithstanding the
foregoing, the holder shall have the right to satisfy such
withholding, in whole or in part, in Shares (including by having
the Corporation withhold Shares otherwise issuable in respect of
such Options or Restricted Stock) valued at Fair Market Value on
the date of exercise or lapse of restrictions, as applicable.
8
<PAGE>
9. TAX LIABILITY. Subject to the Committee's discretion,
agreements between the Corporation and grantees in connection
with awards of Options or Restricted Stock may provide for the
payment by the Corporation of a supplemental cash payment to
grantees promptly after the exercise of an Option, or promptly
after the date on which the shares of Restricted Stock awarded
are included in the gross income of the grantee under the Code.
Such supplemental cash payments, to the extent determined by the
Committee, shall provide for the payment of such amounts as may
be necessary to result in the grantee not having any incremental
tax liability as a result of such exercise or inclusion in
grantee's gross income. The determination of the amount of any
supplemental cash payments by the Committee shall be conclusive.
10. TERMINATION OF EMPLOYMENT. Notwithstanding any
provision of the Plan to the contrary, (i) upon the termination
of employment of an Optionee with the Corporation and all
Subsidiaries other than for Cause, the optionee (or the
optionee's estate in the event of the optionee's death) shall
have the privilege of exercising any unexercised Options which
the optionee could have exercised at the time of such termination
of employment at any time until the end of six months following
such termination of employment and (ii) upon the termination of
employment of an optionee with the Corporation and all
Subsidiaries for Cause, all unexercised Options of such optionee
shall terminate ten days after such termination of employment.
The Committee may permit individual exceptions to the
requirements of this section by extending the period in which
Options may be exercised, provided, however, that no Options may
be extended past the earlier to occur of (i) their expiration
date or (ii) three years following termination of employment.
11. ADJUSTMENT OF OPTIONED SHARES. If prior to the
complete exercise of any Option there shall be declared and paid
a stock dividend upon the Shares of the Corporation or if the
Shares shall be split-up, converted, reclassified, or changed
into, or exchanged for, a different number or kind of securities
of the Corporation, the Option, to the extent that it has not
been exercised, shall entitle the holder upon the future exercise
of such Option to such number and kind of securities or other
property subject to the terms of the Option to which he would be
entitled had he actually owned the Shares subject to the
9
<PAGE>
unexercised portion of the Option at the time of the occurrence
of such stock dividend, split-up, conversion, reclassification,
change or exchange; and the aggregate purchase price upon the
future exercise of the Option shall be the same as if originally
optioned Shares were being purchased thereunder. If any such
event should occur, the number of Shares with respect to which
Options remain to be issued, or with respect to which Options may
be reissued, shall be similarly adjusted.
In the event the outstanding Shares shall be changed into or
exchanged for any other class or series of capital stock or cash,
securities or other property pursuant to a recapitalization,
reclassification, merger, consolidation, combination or similar
transaction, then each Option shall thereafter become exercisable
for the number and/or kind of capital stock, and/or the amount of
cash, securities or other property so distributed, into which the
Shares subject to the Option would have been changed or exchanged
had the Option been exercised in full prior to such transaction,
provided that, if the kind or amount of capital stock or cash,
securities or other property received in such transaction is not
the same for each outstanding Share, then the kind or amount of
capital stock or cash, securities or other property for which the
Option shall thereafter become exercisable shall be the kind and
amount so receivable per Share by a plurality of the Shares, and
provided further that, if necessary, the provisions of the Option
shall be appropriately adjusted so as to be applicable, as nearly
as may reasonably be, to any shares of capital stock, cash,
securities or other property thereafter issuable or deliverable
upon exercise of the Option.
12. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT.
The Corporation may postpone the issuance and delivery of Shares
upon any exercise of an Option, or upon any lapsing of
restriction on any shares of Restricted Stock until (a) the
admission of such Shares to listing on any stock exchange on
which Shares are then listed and (b) the completion of such
registration or other qualification of such Shares under any
state or Federal law, rule or regulation as the Corporation shall
determine to be necessary or advisable. Any person exercising an
Option and any grantee of Restricted Stock shall make such
representations and furnish such information as may, in the
opinion of counsel for the Corporation, be appropriate to permit
the Corporation, in light of the then existence or nonexistence
10
<PAGE>
with respect to such Shares of an effective registration
statement under the Securities Act of 1933, as from time to time
amended, to issue the Shares in compliance with the provisions of
that or any comparable act.
13. AMENDMENT OF THE PLAN. The Committee may at any time
discontinue the Plan or the grant of any additional Options or
Restricted Stock under the Plan. Except as hereinafter provided,
the Committee may from time to time amend the Plan and the terms
and conditions of any Options or Restricted Stock not theretofore
issued, and the Committee, with the consent of the affected
holder of an Option or Restricted Stock, may at any time withdraw
or from time to time amend the Plan and the terms and conditions
of such Option or Restricted Stock as have been theretofore
granted.
14. EFFECTIVENESS AND TERM OF THE PLAN. The Plan shall
become effective and in full force and effect upon its approval
by the Board and, unless sooner terminated by the Committee
pursuant to Section 13 hereof, the Plan shall terminate on the
date ten years after such approval. No Option or Restricted
Stock may be granted or awarded after termination of the Plan.
Termination of the Plan shall not affect the validity of any
Option or Restricted Stock outstanding on the date of such
termination.
11
(..continued)
<PAGE>
US Airways Group, Inc.
Exhibit 11
Computation of Primary and Fully-Diluted Earnings Per Share
(unaudited)
(in thousands, except per share amounts)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Adjustments to Net Income (Loss)
- --------------------------------------
Net income (loss) $152,658 $(32,293)
Preferred dividend requirement (20,864) (22,274)
------- -------
Net income (loss) applicable to common
stock and common stock equivalents
used for primary computation 131,794 (54,567)
Fully diluted adjustments:
Assume conversion of preferred stock:
Preferred dividend requirement 20,864 22,274 a)
------- -------
Adjusted net income (loss) applicable
to common stock assuming full dilution $152,658 $(32,293)
======= =======
Adjustments to common stock shares
outstanding
- --------------------------------------
Average number of shares of
common stock outstanding 64,413 63,618
Primary adjustments
Incremental shares from the 1984,
1992, 1996 and 1997 Plans'
outstanding stock options
using the treasury stock method 1,364 - b)
------- -------
Total average number of common and
common equivalent shares used for
primary computation 65,777 63,618
======= =======
Average number of shares of common
stock outstanding 64,413 63,618
Fully diluted adjustments
Incremental shares from the 1984,
1992, 1996 and 1997 Plans'
outstanding stock options using
the treasury stock method 1,643 1,210 c)
Assume conversion of convertible
preferred stock 39,155 39,156 a)
------- -------
Total average number of
common stock shares to be
outstanding after full conversion 105,211 103,984
======= =======
Income (Loss) per Common Share
- ----------------------------------------
Primary income (loss) per
common share $ 2.00 $ (0.86)
======= =======
Fully-diluted income (loss)
per common share $ 1.45 $ (0.31)
======= =======
a) Inclusion of the effects of assuming conversion of US Airways
Group's Series A, B, F and T Preferred Stock is antidilutive
but included in accordance with Regulation S-K Item 601(b)(11).
b) The incremental shares that are a result of assuming exercise
of stock options using the treasury stock method are
antidilutive and excluded from the calculation of primary
earnings per share.
c) The incremental shares that are a result of assuming exercise
of stock options using the treasury stock method are
antidilutive but included in accordance with Regulation S-K
Item 601(b)(11).
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> US AIRWAYS GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 868,848
<SECURITIES> 595,408
<RECEIVABLES> 450,825<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 235,759
<CURRENT-ASSETS> 2,307,552
<PP&E> 6,376,859
<DEPRECIATION> 2,517,494
<TOTAL-ASSETS> 7,470,923
<CURRENT-LIABILITIES> 2,691,663
<BONDS> 2,577,997
758,719
213,128
<COMMON> 64,567
<OTHER-SE> (846,161)
<TOTAL-LIABILITY-AND-EQUITY> 7,470,923
<SALES> 0
<TOTAL-REVENUES> 2,101,078
<CGS> 0
<TOTAL-COSTS> 1,925,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,508
<INCOME-PRETAX> 165,374
<INCOME-TAX> 12,716
<INCOME-CONTINUING> 152,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,658
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.45
<FN>
<F1>Receivables are presented net of allowances.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> US AIRWAYS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 867,204
<SECURITIES> 595,408
<RECEIVABLES> 456,022<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 201,495
<CURRENT-ASSETS> 2,271,624
<PP&E> 6,124,047
<DEPRECIATION> 2,425,649
<TOTAL-ASSETS> 7,352,344
<CURRENT-LIABILITIES> 2,721,962
<BONDS> 2,577,058
0
0
<COMMON> 1
<OTHER-SE> 58,473
<TOTAL-LIABILITY-AND-EQUITY> 7,352,344
<SALES> 0
<TOTAL-REVENUES> 2,090,353
<CGS> 0
<TOTAL-COSTS> 1,916,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,250
<INCOME-PRETAX> 160,886
<INCOME-TAX> 17,257
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,629
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>EPS calculations are not relevant because US Airways, Inc. is a wholly-owned
subsidiary of US Airways Group, Inc.
</FN>
</TABLE>
<PAGE>
US Airways, Inc.
Exhibit 99
Select Airline Operating and Financial Statistics (Note 1)
(unaudited)
Three Months Ended
March 31,
------------------
Increase
1997 1996 (Decrease)
------ ------ ---------
Revenue passengers (thousands)* 13,867 12,938 7.2 %
Average passenger journey (miles)* 714 673 6.1 %
Total revenue passenger miles
("RPMs") (millions) (Note 2) 9,948 8,788 13.2 %
RPMs (millions) (Note 2)* 9,900 8,709 13.7 %
Total available seat miles
("ASMs") (millions) (Note 3) 14,539 13,583 7.0 %
ASMs (millions) (Note 3)* 14,481 13,493 7.3 %
Passenger load factor (Note 4)* 68.4% 64.6% 3.8 pts.
Break even load factor (Note 5) 64.0% 67.1% (3.1) pts.
Passenger revenue per ASM
(Note 6)* 12.11c 11.50c 5.3 %
Total revenue per ASM (Note 7) 13.38c 12.74c 5.0 %
Cost per ASM (Note 8) 12.35c 12.81c (3.6) %
Yield (Note 9)* 17.71c 17.81c (0.6) %
Average stage length (miles)* 587 573 2.4 %
Cost of aviation fuel per
gallon (Note 10) 75.44c 64.99c 16.1 %
Cost of aviation fuel per
gallon (excluding fuel taxes) 69.04c 58.61c 17.8 %
Gallons of aviation fuel
consumed (millions) 282 266 6.0 %
* Scheduled service only (excludes charter service)
c cents
Note 1. Operating statistics exclude flights operated by US
Airways, Inc. ("US Airways") under a wet lease
arrangement with British Airways Plc ("wet lease"). The
wet lease arrangement expired May 31, 1996. Operating
statistics include free frequent travelers and the
related miles flown. Financial statistics exclude
revenues and expenses generated by the US Airways Express
capacity purchase program and the wet lease arrangement.
Wet lease amounts of $8.8 million have been excluded from
the first quarter results for 1996 from both Other
operating revenues and Other operating expenses for
purposes of financial statistic calculation (revenues and
expenses generated by the wet lease arrangement net to
zero).
Note 2. Revenue passengers multiplied by the number of miles they
flew.
Note 3. Seats available multiplied by the number of miles flown
(a measure of capacity).
Note 4. Percentage of aircraft seating capacity that is actually
utilized (RPMs/ASMs).
Note 5. Percentage of aircraft seating capacity that must be
utilized, based on fares in effect during the period, for
US Airways to break even at the pretax income level.
Note 6. Passenger transportation revenue divided by ASMs (a
measure of unit revenue).
Note 7. Total Operating Revenues divided by ASMs (a measure of
unit revenue).
Note 8. Total Operating Expenses divided by ASMs (a measure of
unit cost).
Note 9. Passenger transportation revenue divided by RPMs (a
measure of unit revenue).
Note 10. Includes the base cost of aviation fuel, fuel taxes and
transportation charges.
